Declaring bankruptcy, depending upon your circumstances, can be a real life-saver if you can’t repay your credit card debt. If utilized correctly and responsibly, it can put an end to harassing creditors and sleepless nights. It’s often thought of as an option of last resort, because other alternatives should be considered before filing a Chapter 7 or Chapter 13 bankruptcy. In most cases, it gives you the opportunity to make a fresh start, and learn from the mistakes that resulted in your financial calamity.
There’s no getting away from the fact that once a bankruptcy filing appears on your credit report, it’ll negative impact your overall credit score and rating, making it nearly impossible to be given credit by other lenders because of your increased risk. Once lenders see that you’ve filed bankruptcy, they get nervous about their prospects of repayment from someone who has clearly shown their inability to manage their finances.
You really can’t blame them for thinking this way. If lending institutions simply handed out loans to people like Halloween candy and were never paid back, they’d soon go out of business. When a bank evaluates a loan application, one of the factors it examines is the applicant’s ability to make payments. The question is, does he or she have enough income to service the loan and meet other financial obligations? A bank will usually not grant a mortgage for instance, if the mortgage payments are going to exceed 28 percent of the applicant’s income. Obtaining a mortgage after bankruptcy is difficult, but not impossible.
Obviously the first and foremost area you should focus on is improving your credit. It’ll take time — but it’s doable. A bankruptcy filing certainly won’t help matters any, but you can’t let that slow you down. Attempting to build up your credit score to upwards of 700 to 750 points is like starting from scratch. Think of your efforts to repair your credit after declaring bankruptcy like climbing the steps on a ladder. You must prove to those who would lend you money, that you’re someone who is mature and responsible, as well as someone who can be trusted to pay them back.
If you’re denied a mortgage after filing for bankruptcy, don’t take it personally. Once you’ve proven yourself over time to be a responsible individual who manages their finances well and improves your credit scores significantly, lenders would then feel more comfortable about their prospects for repayment and begin to relax.
You can attempt to obtain a mortgage after declaring bankruptcy the easy way or the hard way. The hard way involves explaining, convincing or even conniving lenders about how you’re going to repay them until you’re blue in the face. However you’ll quickly discover that this is a dead-end. The easy way involves proving to them over time that you’re an excellent money manager.
By managing your own finances well, you can be trusted to handle someone else’s finances equally well. You’ll need to obtain financial stability again beginning with your credit. I’d strongly advise you to postpone getting a mortgage for about two years after you’ve filed for bankruptcy, while you’re in the process of getting your financial house in order.
You might consider utilizing a special government program to assist you in obtaining a mortgage. A few of these programs will work to help you put some money down on your new home, while attempting to convince lenders that you should be considered for a loan, despite the fact that you’ve declared bankruptcy. Once you have a steady monthly income, and are paying off your debts, you’ll probably qualify for a few of these government programs. You have nothing to lose by checking them out.
If you already have a home, you might consider using your current home as equity to convince lenders that you should be considered for a loan. The lower the amount of money you want to borrow, the less risky you are in the eyes of lenders. If you can pay for the majority of your new home by selling your current home, lenders will probably forgive the fact that you’ve declared bankruptcy.
As I’ve stated in previous articles, bankruptcy is a serious issue and shouldn’t be taken lightly. People get little respect when their so far in debt that they can’t pay back what they owe. You need to make absolutely sure it’s the best option for you, by carefully analyzing every other possible alternative. It should be your last resort financially, because it makes the process of getting a mortgage like pulling teeth.